NEWS / Foreign Exchange

US: Retail sales disappoint again

US: PPI rises more than expected, but surveys shows easing manufacturing conditions

Producer prices rose much more than expected in February. Headline PPI surged 1.3% M/M to be up 2.5% M/M. Markets were looking for a more modest 0.5% M/M and 1.9% Y/Y increase. In January PPI fell by 0.6% M/M and was up 0.2% Y/Y. Food prices continued to surge, up 1.9% M/M, while energy prices increased 3.5%. Also core PPI rose stronger-than-expected, up 0.4% M/M and 1.8% Y/Y, unchanged from January, but above the 0.2% M/M expected. While these figures look ugly, the underlying picture is less threatening. Food prices were higher because of weather conditions and the rise in core PPI was very much due to tobacco and light truck prices. So the Fed won??™t unduly worry about these latest developments, even if it may at the margin convince them to stay sidelined for a bit longer.

The NY Fed survey on manufacturing showed a substantial softening of conditions in the sector in March, but it follows a long period of strong readings that were out of line with other surveys. So it probably doesn??™t signal some extra worries for the national manufacturing sector. The headline figure plunged to 1.9 from 24.4 in February. Also new orders dropped sharply, notably to 3.1 from 18.9 previously. Labour market conditions were pretty solid, slipping only marginally to 11.4, while the workweek even jumped higher to 12.8 (from 5.4). Price readings were mixed, prices paid up (30.2), but prices received down (10.5). The Philly Fed survey on manufacturing was weak too. The headline, general business activity fell unexpectedly to 0.2 from 0.6, new orders were marginally higher at 1.9 (but close to unchanged 0 value), shipments improved slightly more (to 6.8 from 1.7), but unfilled orders, delivery times and inventories all dropped further into negative territory. Both price indices rose higher. Overall, the survey shows that the manufacturing is having a difficult time, being effectively at a standstill.

Initial claims dropped 12 000 in the most recent week to 330 000 (consensus 338 000). The 4-week average fell 10 000 to 329 250. Continuing claims, reported with a one-week lag, rose 38 000 to 2 576 000.

EMU: Core inflation rises to 1.9%, above the headline inflation rate

Also in February, euro zone headline inflation remained below the 2%-level at 1.8% Y/Y. Core inflation however continued its uptrend helped by the German VAT increase and rose to from 1.7% Y/Y in January to 1.9% Y/Y. It was the first time since March 2004 that the core inflation rate surpassed the headline inflation rate.

The rise in core inflation may confirm the ECB view that underlying inflationary pressures will augment as economic growth remains strong.